A Work Project presented as part of the requirements for the Award of a Master’s degree in Management from the Nova School of Business and Economics. Competitiveness and Internationalization of a Portuguese SME in the Cheese Market Marketing Mix and Budget PATRÍCIA BITTON PARREIRA PESTANA REIS Work Project carried out under the supervision of: Professor João Pedro Pires dos Reis Muralha Delgado 04 - 01- 2021
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A Work Project presented as part of the requirements for the Award of a Master’s degree in
Management from the Nova School of Business and Economics.
Competitiveness and Internationalization of a Portuguese SME in the Cheese Market
Marketing Mix and Budget
PATRÍCIA BITTON PARREIRA PESTANA REIS
Work Project carried out under the supervision of:
Professor João Pedro Pires dos Reis Muralha Delgado
04 - 01- 2021
To facilitate the reading of the presented dissertation and consult the appendices sections for
further details, throughout the report all the Appendices stated as “see Appendix X” are linked
directly to the respective appendix when clicked, as well as linked back to the main text when
clicking the appendix number in the Appendices section.
Table of Contents
1. Introduction and Organizational challenge ........................................................................2
2. Methodology and Analysis.................................................................................................3
Table 6 – Forecasted Growth in Marketing budget (United States and Germany)
Financial Plan
Appendix 65: Unit Cost of Production – Internal Transfer Price
Appendix 66: Projected Profitability evolution in United States
Appendix 67: Projected Profitability evolution in Germany
Appendix 68: P&L Statement – United States
Appendix 69: P&L Statement – Germany
Appendix 70: Net Working Capital Requirements – United States
Appendix 71: Net Working Capital Requirements – Germany
Appendix 72: Cash-Flow Statement United States
Appendix 73: Cash-Flow Statement Germany
Appendix 74: Cash Flow evolution – United States
Appendix 75: Cash Flow evolution – Germany
Appendix 76: Sensitivity Analysis United States
Appendix 77: Sensitivity Analysis Germany
Appendix 78: Scenario Analysis United States
Appendix 79: Scenario Analysis Germany
Table 7 – Forecasted Volumes sold 2021
Table 8 – Forecasted Transportation costs
Table 9 – Forecasted Personnel expenses
Table 10 – Cost of Equity formula
Table 11 – Cost of debt formula
Table 12 – WACC formula
List of Abbreviations
AICEP Agência para o Investimento e Comércio Externo de Portugal
APAC Asia-Pacific region
APEC Asia-Pacific Economic Cooperation
BM Business Model
CAGR Compounded Annual Growth Rate
CAPEX Capital Expenditure
CAPM Capital Asset Pricing Model
COGS Cost of Goods Sold
DOP & IGP Portuguese nomenclature for PDO
EPA Economic Partnership Agreement
EU European Union
FDI Foreign Direct Investment
JETRO Japan External Trade Organization
JSA Japanese Standards Association
KAM Key Account Management
KPI Key Performance Indicator
M&A Mergers & Acquisitions
MAR Missing at Random
MCAR Missing Completely at Random
MIPRO Manufactured Imports and Investment Promotion Organization
NAFTA North American Free Trade Agreement
NPV Net Present Value
NWC Net Working Capital
OECD Organization for Economic Cooperation and Development
PDO Protected Denomination of Origin
POS Point of Sale
ROA Return on Assets
ROE Return on Equity
RSP Retail Selling Price
S4 Portuguese Cheese Company in Analysis
STP Segmentation; Targeting; Positioning
U.S. The United States of America
WACC Weighted Average Cost of Capital
WCO World Customs Organization
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Abstract
S4, an experienced Portuguese cheese company leader in the domestic fresh segment, aims to
expand and consolidate its business internationally. By screening several countries based on
macro and industry - specific indicators and conducting an in-depth analysis of the four most
promising ones, United States and Germany resulted to be the most attractive markets for S4’s
internationalization. Following, the most suitable entry mode was defined as well as the ideal
business model and marketing plan to effectively run a business in both countries. Financial
projections and risk evaluations were performed to assess the viability of the proposed
international plan.
Keywords: Cheese; Internationalization; Expansion; SME; Market Selection; United States;
Germany; Entry Strategy; Business Model; Strategic Analysis.
Acknowledgments
As a Team we would like to express our gratitude to our supervisor, Professor João Pedro
Delgado, who has not only guided and supported us throughout the execution of the project but
also encouraged us to have a critical mindset and surpass our expectations. We are thankful for
the learning opportunity while working with such a respectful and engaging company, which
would not be possible without the collaboration, availability and insightful feedback from the
Export Manager Vera Mota. We would like to leave a note to the importance it was to have all
the Team creatively and engagingly co-operating in the execution of this project to build the
most viable solution to the proposed challenge, in such uncertain worldwide pandemic.
This work used infrastructure and resources funded by Fundação para a Ciência e a Tecnologia
(UID/ECO/00124/2013, UID/ECO/00124/2019 and Social Sciences DataLab, Project 22209),
POR Lisboa (LISBOA-01-0145-FEDER-007722 and Social Sciences DataLab, Project 22209)
and POR Norte (Social Sciences DataLab, Project 22209).
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1. Introduction and Organizational challenge
S4 is a Portuguese company with more than 100 years of experience as a cheese
manufacturer, having a consolidated presence in the domestic market and a wide portfolio of
products inserted in all cheese categories, namely Fresh and Cottage, Cured-Specialty and
Grated and Sliced, standing for its traditional values and high-quality standards.
In 2016, S4 started exploring international markets having reached already 18 diversified
countries. Since the company already reached the maturity stage of its lifecycle in the domestic
market, it highly needs to further invest in its internationalization process, taking advantage of
new growth opportunities and consolidating the business in the countries where it is already
present. In this sense, the driving objective and organizational challenge laid on defining the
most attractive international markets to be explored and successfully present a feasible and
viable expansion plan following a sequential structure: S4’s Situation Analysis (internal and
external analysis, current international strategy, evaluation of the competitive strategy and
global readiness to expand); Market Selection and Country in-depth analysis based on
comprehensive market evaluation and selection techniques, namely using country ranking and
clustering analysis and deeply evaluating each of the most promising identified markets, thus
being able to develop the appropriate International Business Strategy, Entry Mode and
Business Model for the recommended target markets, Marketing Plan with the definition of
the marketing mix and the Financial & Risk Assessment of both projects.
In this sense, the purpose of this Internationalization plan was to build and assess an
International Market Selection and Strategy to take advantage of S4’s experience, resources and
capabilities within a small firm’s setting, flexibility and expectations, and possibly tackling
them into the most promising expansion’s proposal.
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2. Methodology and Analysis
Primary and secondary data were collected to retrieve all the relevant data for the project.
Regarding the primary research, semi-structured interviews containing questions and a list of
themes adjusted to the specific requirement of the research phase were carried out to the
company’s Export Manager, Vera Mota, namely one in-person interview, 5 over Microsoft
Teams and several emails and direct calls or messages were exchanged depending on the
delicacy of the topic to be discussed. Moreover, in the Entry Strategy, Business Model stage
for the selection of the potential partners, two semi-structured online interviews were performed
to Norseland Inc. former New Business Development Manager, to assess the advantages,
disadvantages, viability and feasibility of such potential partnership for S4. Accordingly, all
the collected information was gathered, structured and analysed leading to concise and logical
conclusions to apply in the report. The secondary data collection, necessary for the entire
project, involved the research on books, published articles, NOVA courses’ content and online
sources, namely commercial databases such as Euromonitor International, World Bank,
ORBIS, Statista, The Heritage Foundation, European Commission, Government databases and
companies’ digital platforms, among others.
The assessment of the markets followed a sequential selection process to give theoretical
consistency and reasoning given the large number and heterogeneity of the international
markets in analysis, adopting a combined approach of techniques - Ranking and Clustering
analysis - to identify the most attractive countries. In particular, while conducting the Market
Selection it was critical to use the Statistics tool SPSS. Furthermore, the Business Model Canvas
by Osterwalder and Pigneur (2010) was applied as a guiding line for formulation and
implementation of the expansion plan in regard to the main strategic, marketing and financial
decisions. At the Financial Plan level Sensitivity and Scenario Analysis techniques were
performed to evaluate the proposed expansion.
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3. Situational Analysis
3.1. Internal Analysis
3.1.1. Company Overview
S4 is a Portuguese farmers’ family origin company, founded in 1918 in Castelo Branco,
with a history of over 100 years in the Portuguese cheese production. It started producing fresh
cheeses, where it is the unquestionable market leader, and which stands for the largest part of
its production and sales. Over the last decades, S4 engaged in a series of acquisitions of other
competitors and expanded its presence nationally and globally. Nowadays, the company is
headquartered in Lisbon, has 345 employees, five different factories1 throughout Portugal that
produce all their products and it nationwide actively responsible for the collection, production,
packing and distribution, guaranteeing the maximum quality of the cheese that gets to the
Portuguese table. The company rigorously selects raw materials from a wide range of regional
milk producers, enhancing tradition and quality. Throughout its existence, S4 has been capable
of setting up successful relationships with the principal Portuguese retailers in the market such
as Sonae and Jerónimo Martins. Consequently, S4 sells their own branded cheeses in
hypermarkets, supermarkets, discount stores as well as the HORECA channel, but also
produces for their private labels (grated and sliced cheeses for Continente and references in
fresh, cured and grated cheeses for Pingo Doce).
With a market presence in all cheese segments in Portugal, the company stands for its
traditional values and consolidate experience in cheese manufacture, having implemented a
Quality and Food Security Managing System and paying attention to innovation to face and
adapt to new market trends. S4’s mission is to provide their customers with the highest-standard
quality products, focusing on a continuous improvement of its processes. The company aims to
create value both for the brand and its stakeholders through dissemination and marketing of its
1 Montemuro, Palmela, Monforte, Torres Vedras, Abrantes and Logistics Center in Venda do Pinheiro.
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products on different markets, striving to achieve sustainable growth and consolidate its long-
lasting and trustful relationships with customers, employees and business partners along the
supply chain. S4 distinguishes itself for the capacity to adequately respond to place quantities
in due time to customers, quality policy to respect the health of consumers, employment
engagement and, overall, ethical principles, believing in equal opportunities and respect and
protection of the Human Rights, actively contributing to a sustainable development worldwide.
3.1.2. Product Portfolio
S4 presents more than 70 products on the market, taking pride in being, in the fresh cheese
segment, an undisputed market leader, also being a reference in the cured cheese segment,
namely with regional specialties and premium cheeses, so-called PDOs. With a strong product
and consumer-oriented approach, the company strives to develop new quality products
following demanding consumers’ needs and preferences worldwide.
S4’s Product Portfolio is a real added value for the company, and it is composed of four
main product lines, namely fresh cheeses, regional cured specialty cheeses, sliced and grated
cheeses, and cottage cheeses, with different attributes (i.e. shelf-life) that should be taken into
consideration while exploring new markets (see Appendix 1 and 11). It has cheeses with several
formats and a wide variety of textures (from the intense taste of the cured cheeses to the smooth
characteristics of blended cheese) and flavours (cow, goat, sheep and blended), made with both
pasteurized and raw milk. All products are made following careful processes and balanced
nutritional outline guaranteeing the traditional, high-quality and genuine flavour, which have
already led them to achieve national and international awards. By analyzing deeply the
portfolio’s performance through the BCG Matrix it was possible to assess that the Cash Cows
are the fresh cheeses being the line producing the highest gross margin, the STARS are the
cured-specialty which are expected to turn into Cash Cows through a bigger commitment from
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S4, Dogs potentially grated and sliced given the high competition in the market and the
Question Mark is the most recent bio line (see Appendix 2).
Even though the diversified product portfolio may appear as a competitive advantage since
it allows S4 to satisfy wider target segments, the lack of consistent brand image and online and
offline communication prevents it from taking the full potential of this resource. Small logos
with different colours in each product are a potential downside when compared to other players
that highly invest in their brands’ communication and awareness, highlighting the potential
need for more branding efforts (see Appendix 3).
3.1.3. Financial Overview
In the financial overview of the company, S4’s results, liquidity, cash-flow-management,
return on assets and on equity were analyzed. It is important to mention that all the analysis was
based on the financial statements provided by S4 and that no additional notes to the
aforementioned statements were provided (see Appendix 4.1 for Income Statement and
Appendix 4.2 for Balance Sheet).
Based on the profitability analysis it is concluded that the revenues and the EBITDA
evolution have been quite volatile since 2015. The figures significantly increased in 2016,
providing growth of 48,1% and 59,02% for revenues and EBITDA, respectively. Differently,
the two metrics experienced lower growth in periods such as 2019, when revenues and EBITDA
grew 7% and 5,94% (see Appendix 5). It is worth to refer that S4´s revenues and EBITDA
growth over this five-year period have been largely sustained by the ongoing acquisitions or
construction of new production sites such as the Azetitão DOP production site acquired in 2015,
the development of a new production site in 2017, a new factory built in 2018, and by the
acquisition of Queijo Saloio, one of S4’s largest competitors (see Appendix 6).
Considering the credit risk position of the company (see Appendix 7) S4 presents healthy
liquidity ratios, that have been improving over the last five years. The company shows other
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reassuring signs of liquidity given that for 2019 it accounted for a positive NWC (1) and a
current ratio above 1 (1,2). On the other hand, the cash conversion cycle negatively evolved
from -122 in 2015 to 37 in 2019, meaning that the company currently needs to fund their
operational activity trough external sources of financing (see Appendix 8).
Moreover, in order to measure S4’s capital structure in terms of how it has been financing
itself and the subsequent risk of the current financial decisions, three different ratios were
analyzed: Debt-to-Equity (D/E) ratio, Solvency ratio, and Financial Autonomy ratio2. The D/E
ratio as a measure of the level of financial leverage of a company reflects S4’s positive evolution
since 2015, even though the D/E value lies outside of the recommended range above3. In fact,
the ratio reached a value of 239% in 2019. The Solvency ratio, that indicates the company´s
ability to meet its obligations, positively evolved from 7% in 2015 to 41% in 2019. Nonetheless,
the improved value is still below the minimum level of 50% required by financial institutions.
Lastly, the Financial Autonomy Ratio shows that the independence towards the creditors
increased from 3% to 29% from 2015 to 2019, which complies with the minimum requirements
of 25% set by financial institutions of 25% (see Appendix 9).
Furthermore, the ROA4 is significantly low in all the years in analysis, being negative in
2016, demonstrating a probable inability of the company in efficiently using its assets to
generate returns. Differently, ROE5 increased from 2% in 2015 to 6% in 2019, meaning that
returns of shareholders have grown over this period (see Appendix 10).
Overall, the aforementioned analysis led to the conclusion that the financial situation of S4
is relatively risky, in particular taking into account the excessively high levels of debt and the
negative management of S4 cash-flow over the last five years. The revenue’s growth decreased
in the last two years also might suggest a certain saturation of the domestic market and
2 Financial Statement Analysis class. 3 Values vary industry by industry but D/E ratios above 66% should be carefully analysed. 4 Return on Assets measures how efficiently a company uses its assets to generate earnings. 5 Return on Equity measures the profitability of a company in relation to the shareholder´s equity.
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consumers shifting towards different brands, which in turns highlights the need to invest deeply
in products’ innovation and enhances the importance of exploring new international
opportunities.
3.2. External Analysis
The cheese market is inserted in the dairy products market, representing the second-largest
segment after Drinking Milk Products (26,5% of the global dairy sales in 2017 and 26,2% 2022
forecasted) (Euromonitor International 2018). It can be divided into two main categories based
on the freshness, quantity of salt, and addition of other ingredients: the processed cheese
presents more additives and salt, while unprocessed cheese is more naturally produced, with
less salt, fresh milk and less enzymes. In the unprocessed cheese category are included the soft
and hard unprocessed cheeses, where the majority of S4’s products lay on (see Appendix 11).
Both global and domestic markets show the positive results of the cheese category,
enhancing the opportunities to explore untapped markets and consolidate existing ones.
Understanding the performance of the cheese market worldwide and in Portugal constitutes a
basis for identifying opportunities and threats, thus enabling S4 to better structure its strategic
decisions and the positioning it wants to follow in such attractive cheese market.
3.2.1. Global and Domestic Cheese Market
With 75% of the market represented by unprocessed cheese, the global cheese market was
worth6 approximately 125578,4 million USD in 2019 and is forecasted to achieve 143698,6
million USD by 2025, growing at a CAGR of 1,7 % from 2020 to 2025, a value which is aligned
with the historic CAGR 2015-2020 of 1,8% (Euromonitor International 2020). Figure 1
highlights the global performance in terms of YoY growth and the specific regions’ cheese
market sizes.
6 The reference to market value along this project is in terms of Retail value RSP (i.e., sales at end price to consumer, including retailer and wholesaler mark-ups and sales tax (except in the US and Canada) and excise taxes), computed using historic and forecast constant 2020 prices
and exchange rates.
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Figure 1 - Global and regional Cheese Market Size in USD Million and global YoY growth (%)
(Euromonitor International 2020)
By firstly evaluating the market as a whole, it was possible to observe a global substantial
increase in value - 5,3% - followed by a slight decrease of 0,3% expected to occur between
2019-2020 and 2020-2021, respectively (reaching 132189,3 USD million in 2020 vs 131834,2
USD million in 2021). This is a consequence of the initial penetration of the global COVID-19
pandemic in the supply chain and the ongoing repercussion of the unstable economic, legal and
social situation. In fact, the unusual rise of value in 2020 is mainly associated with the higher
prices in key staples while the decrease in 2021 reflects a market expected to rebound (Farm
Policy News 2020). On the other hand, due to the pandemic that affected overall changes in
demand, namely the plunging orders from the HORECA channel (Farm Policy News 2020),
2020 forecasted global cheese volume is expected to register a drastic drop of 6% compared to
the previous year (17765,5 thousand tonnes in 2019 vs 16658,1 in 2020) (see Appendix 12);
however, a faster recover is forecasted for the upcoming years (3,5% 2020-2025 CAGR), with
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positive expectations (above 3%) within the main regions7, particularly Asia-Pacific with the
highest volume growth predicted (5,8%) (see Appendix 13) (Euromonitor International 2020).
Secondly, by analyzing deeper the performance of the individual regions from 2017 to
2025, it was possible to assess that not only Western Europe and North America distinguished
for being the regions with the highest share in terms of volume consumed (32% and 24%,
respectively in 2019) (see Appendix 12 and 14), but also the ones with the biggest market size
as shown in Figure 1 (i.e. 38% and 36% in 2019, see Appendix 15), in particular the United
States, France and Germany with the highest value in 2019 (see Appendix 16). Although the
two abovementioned regions are expected to still dominating in the near future, Eastern Europe,
Latin America, Asia-Pacific, Middle East and Africa are projected to gain market share and
grow faster, hence making them other promising markets to explore (CAGR 2020-2025 2,6%,
3%, 5,7%, 3,2% respectively vs Western Europe and Australasia 1,3%, North America -0,8%
(Euromonitor International 2020).
In this context, Europe is a major player with the highest level of cheese consumption per
capita (with France in the leading position in 2019 - 17,2kg - followed by other 11 European
countries and the United States at 11,8kg) (see Appendix 17) (Euromonitor International 2020).
In addition, the European market is forecasted to grow in terms of total consumption (CAGR
of 0,74% until 2025) (Statista 2020), as well as regarding exported and imported cheese
volumes, being the amount of cheese exported worldwide considerably higher than the one
imported in the region (see Appendix 18) (Statista 2020). As of 2018, Germany is the top cheese
importer worldwide with a trade value of 4379,21 USD million, followed by United Kingdom,
Italy, France, Belgium, Netherlands, United States and Japan, respectively (see Appendix 19),
(OEC 2018). The global cheese production increased throughout the last years with Europe
(with Germany, France and Italy as top performers) being in 2019 the top producer of cheese
7 CAGR 2020-2025 by region: Western Europe 3%, Australasia 3,9%, Eastern Europe 2,4%, Latin America 3,6%, North America 3,7%,
Middle East and Africa 3,7%.
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worldwide with 10 275 thousand metric tonnes of cheese produced, followed by United States
(Statista 2020) (see Appendix 20).
Portugal, the domestic market of S4, reflects positive results as the global cheese market.
In 2019, the cheese market was the third most valuable among all the Portuguese industries,
with the unprocessed category leading with 96% of the total market sales, especially hard
cheeses, where the cured line is included (see Appendix 21). The cheese consumption reached
12.5kg/per capita accounting for 965,7 million USD spent in the category (Euromonitor
International 2020) and has been growing in the last years. Notably, in 2019 the total volume
and value increased by 2,6% and 2,8%, respectively, compared to the previous year (see
Appendix 22), and the forecast made from 2019 until 2025 confirms an ongoing stable growth
(2,2% CAGR in retail value and 4,03% in volume) (Euromonitor International 2020). The value
of exports of cheese from Portugal totaled 42 million USD in 2019, decreasing by 10,5% in
value terms compared to 2018, with Angola (19,5% - 8,38 million USD), Spain (17% - 7,31
million USD), France (10,9% - 4,69 million USD) and United States (8,64% - 3,7 million USD)
as the top export destinations8 (Trend Economy 2020).
In terms of distribution channel, the global and domestic performances are aligned with
Modern Grocery retailers representing the majority of the total sales (76% globally and 87%
domestically), in particular with supermarkets accounting for 40% and 57%, followed by
hypermarkets. In addition, in the global traditional groceries, the independence small groceries
are the third largest (12,5%), while in Portugal the discounters (6,1%) (Euromonitor
International 2020).
8 Followed by Switzerland with a share of 8,29% (3,55 million USD), United Kingdom with a share of 4,4% (1,88 million USD), Canada with a share of 4,23% (1,81 million USD), Cabo Verde with a share of 4,03% (1,72 million USD), Luxembourg with a share of 3,92% (1,68 million
USD), Morocco with a share of 3,69% (1,58 million USD).
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3.2.2. Market Trends
Emerging health concerns, dairy-free demand, sophisticated snacking and high-quality
distinctive cheese flavours and textures identify target consumers who are willing to pay more
premium prices for quality and experience. As consumers become more informed and
conscious about their health and the production of the dairies they eat, the demand for more
natural and nutritional cheeses with higher levels of protein, calcium and vitamins is increasing.
The emergent concept of cheese as a healthy snack is confirmed by the upcoming growth of the
global unprocessed cheese category (higher than the processed one – 9,36% vs 4,21% CAGR
2020-2025), (see Appendix 23), as well as the rise of the organic cheese market (11% CAGR
2019-2025) (see Appendix 24) (Statista 2020). Moreover, gut health issues, rise of flexitarians9,
concerning intolerances and changes in consumers beliefs around sustainability and animal
welfare are increasing the demand for plant-based dairy options, namely in Western countries
and the United States, since the APAC continues to rely heavily on tradition (Euromonitor
International 2020). In fact, vegan cheese is gaining popularity, not only by being dairy-free
but also because it is considered to be a rich source of protein (Euromonitor International 2020).
In 2020 the global vegan cheese market was valued 2,50 billion USD in 2020 and it is
expected to grow at a 9% CAGR 2020-2025 (Market Data Forecast 2020). In light of the
abovementioned health and wellness trend manufacturers’ brands and private labels are
investing more in the fresh and free-lactose cheese segment as well as in innovative dairy
alternatives, very differentiate and with some exclusive limited-edition products to fulfil the
need of young millennials looking for new and adventurous flavours, high-quality options
enhancing the eating experience (Euromonitor International 2020; FoodBev Media 2020).
Furthermore, another noticeable trend is related to sophisticated dairy snacking as
innovative, healthy, on-the-go cheese and other dairy options are arising, with consumers
9 A Flexitarian Diet is a style of eating that encourages mostly plant-based foods while allowing meat and other animal-based products in
moderation (Healthline 2019).
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lifestyle demanding for smaller and more easy-to-eat meals, such as hand-held less sugary
cheese snack bars or simple snack-size cheeses. Overall, flexibility, convenience and pleasant
experience are influencing brands across the dairy snacking industry, which is expected to
growth at 5,14% CAGR during the forecasted period 2020-2024 (FoodBev Media 2020).
3.2.3. Competitive Landscape
Competitor analysis is the first step to examine the rivalry among each market player.
Given the attractiveness of the cheese market based on performance and new opportunities to
explore, the risk of new entrants is high, hence companies need to distinguish and consolidate
their position.
With 300 players in the Portuguese operation of dairies and cheese making industry, the
main market for S4 is unsaturated when compared to other countries, but highly competitive
(ORBIS 2020). Fromageries Bel Portugal SA (Bel Groupe) leads the market (21,4% value share
in 2019), followed by the Portuguese company Lactogal with 16,7% and finally S4 with 10,5%,
(see Appendix 25 and 26) (Nielsen 2019)10. The two abovementioned direct competitors are
both a huge international name and a national company with well-established and strong
positions. To evaluate the extent of S4’s competitors it becomes important to understand their
market commonality and similarity in their resources (Hitt et al. 2009, 140). These companies
operate in the dairy industry, not only within the cheese category but also with milk, butter and
other dairy products. Particularly, in the cheese market, both brands offer a wide product
portfolio with fresh, creamy, sliced, grated and semi-hard cheeses. In addition, Lactogal offers
also specialty cheeses, in particular for the HORECA channel, and Bel Portugal created a bio
cheese and started offering snack-size options, also as bundles with dry fruits, to follow
emerging trends. While Bel Portugal shows a high and fast adaptation to tendencies, Lactogal
focuses on communicating the brand’s history and tradition, without compromising its
10 Information provided by S4.
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authenticity. Although the top 3 firms have become very diversified, making multimarket
contacts are inevitable when operating in such fast-cycled market, where some competitive
advantages might be temporary. All three players’ strengths lay on their market expertise, high-
quality standards, focus on product development and internationalization objectives, however
when compared to S4 they do not exclusively focus on cheese or offer such broad regional
cured specialties (where PDOs are included), which can be seen as a domestic competitive
advantage point for S4 to take into account in the internationalization process.
Globally is Kraft Heinz Co. who takes the lead as the biggest manufacture brand in the
cheese category (7%), followed by Lactalis Groupe, (6,6%) and Bel Groupe (3,1%) also present
in Portugal. Kraft Heinz Co is the world 5th biggest company in the food & beverages industry
with 26 brands and a wide cheese portfolio, specifically focused on butter, cream and mainly
processed cheeses as well as natural or cheese bundles with crackers, offered sliced, grated and
creamy. Besides, it is worth to mention Savencia SA, the worldwide 4th cheese player that with
2,9% market share leads the global specialty cheeses segment outreaching the market with
strong and solid brands with distinctive products (Euromonitor International 2020). The firm
focuses on continuous product innovation, not only adapting to local tastes and habits but also
be aware of the quality of manufacturing and the authenticity of the products, namely in the
PDOs’ cheeses, which can be seen as a good role model for S4 futuristic approaches.
Private labels are the worldwide leaders accounting for 19,9% of the total cheese retail
value. They continue to consolidate their result and leadership even after the COVID-19
outbreak, which can be justified by the increasing development of innovative products and
premium offers (such as for the organic market) with an excellent balance between quality and
price which is impacting positively the customers' loyalty towards these brands (Euromonitor
International 2020).
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3.3. Competitive Advantages
To be successful in such a competitive market a firm must clearly understand the strategy
and acquire the necessary skills and resources to compete in the cheese industry, the so-called
Key Success Factors. In this sense, the identification of the resources and capabilities that
constitute sustained competitive advantages is critical for a sustainable survival and growth
(Carpenter and Sanders 2014, 80). Given the resources and capabilities S4 owns and by
evaluating them accordingly to the VRINE Model Criteria (see Appendix 27) (Carpenter and
Sanders 2014, 80) it was possible to identify the main competencies of S4 that can be effectively
exploited as sustainable competitive advantages: its Market Expertise, with more than 100
years of experience in the Portuguese cheese market and constantly paying attention to
innovation to accompany trends and demands, Quality Standards, contributing to the brand
image in its domestic landscape and playing as an advantage when entering untapped markets,
Specialty cheeses offer (particularly PDOs), that enhances the uniqueness, tradition and value
to Portuguese origin and finally, the entire Operation Process control in the domestic market
with a considerable production capacity, enabling the company to be independent. S4’s
Financial Resources, Wide Network (not only concerning the domestic market but also
through previous international expansions) and Special bonds with the Portuguese
communities across the world constitute temporary competitive advantages being imitable and
substitutable. Furthermore, the Brand image and Wide Portfolio diversity cannot constitute a
competitive advantage due to the lack of branding efforts and the improper leverage of such a
broad offer, respectively.
3.4. SWOT Analysis
By understanding S4´s strengths, it was possible to identify the potential opportunities
the company may pursue in the future, as well as assess weaknesses in order to mitigate the
risk and consequences of potential threats to the company’s sustainability (see Appendix 28).
16
S4’s strengths lay on the wide range of cheeses, based on Portuguese tradition, allowing it
to tackle different segments, being the only supplier in the Portuguese market present in all
cheese market categories and notably the market leader in fresh cheese and a critical player in
the regional specialties’ segment. The high-quality of the products, the PDOs’ certificated
cheeses as well as the attention the company pays to innovation to continuously accompany
changes in market trends developing healthier and tasteful cheeses, namely within the organic
market through the most recent bio line and specialty segment whose demands have been
growing worldwide, constitute a differentiator factor from competitors. In addition, S4 controls
all the national operational cycle, allowing it to be constantly aware of all the stages of the
process and its products’ performance.
Although the international expansion has intensified over the last years, difficulties in
controlling the operations process arise due to the nature itself of the applied entry mode, which
implies a high dependency on each local distributor performance. Moreover, limitations in
terms of shelf life of some cheeses – especially the fresh line – as well as obstacles in terms of
following all local regulations adjustments regarding food standards, particularly towards
animal-based products, are identified. With regard to S4´s weaknesses, it is also important to
point out the limited brand awareness and image which is narrowing the target customers the
company could captivate. The weak promotion channels’ efficiency, namely investments in
organic marketing such as SEO, Google Ads and international social media accounts as well as
the perceived inconsistency of brand communication and packaging differences – in brands’
names on packages (possibly mistaking consumers), in logos (colour pallet choices, small size
almost non-noticeable in the packages and shelves) – all reflect the company is not taking full
potential of marketing, branding and advertising.
Therefore, S4 should leverage its investment not only in marketing but also innovation and
digitalization to truly grab the opportunity of the growing demand for plant-based, healthy
17
cheeses and high-quality premium segments, exploiting its commitment to some of the current
markets – including the domestic - with different entry strategies and business models.
As for potential threats, there is an increasing rivalry in the Portuguese and global market
with the growing importance of the private labels who threaten S4´s dominant position in the
Portuguese market within the fresh cheese, and also internationally, where, in addition, there is
a strong presence and dominance of larger companies, such as French, Italian and American
producers. To successfully enter in different international markets, it is required an extensive
number of resources and capabilities in order to adapt to each market characteristics which
might be difficult to achieve. Finally, the saturation of some markets due to the increasing
number of dairy and cheese companies in the industry, the stricter regulations towards animal-
based products and bureaucratic restrictions in terms of production and labelling processes as
well as the increasing number of lactose intolerant people and no animal-based products’
consumers are all potential obstacles for a future foreign expansion.
3.5. International Strategy
3.5.1. Current International Approach
International markets are a crucial part of S4 business. The company’s internationalization
process started in 2016 and has been consolidated over years, selling nowadays to 18 countries
and having already established commercial relationships with Brazil, Morocco, Dubai and
Saudi Arabia (see Appendix 29). In 2019, exports accounted for approximately 8,8% of the
total turnover, with Angola, France, Poland, Germany and Luxembourg, respectively,
representing the top markets in terms of sales11.
Its business model involves exporting a variety of cheese-products with several references
to each country, adapting its wide portfolio offer to the clients’ specific needs and taking into
account the attributes of each product line, namely the shelf-life and the distinctive flavours. In
11 Information provided by S4.
18
particular, as observed in Appendix 30, S4’s positioning in foreign markets is mainly turned
towards the cured-specialty cheese category, which, thanks to the longer shelf-life and unique
characteristics, allows the company to expand the business to overseas regions such as America,
Africa and Asia-Pacific.
Each internationalization expansion starts with a research phase, followed by the
penetration into the selected market via trading (direct or indirect exports). The company
gathers information through its wide national and international network of contacts, attending
European and International fairs and webinars, collaborating also with different Portuguese
trade and food associations (such as Portugal Foods12 and AICEP13) that support Portuguese
businesses in their expansion plans. The potential explorable markets’ viability and feasibility
are in general analyzed taking into account several criteria such as political14 and economic
situation, and more specific market indicators - consumption per capita, cheese imports,
competitive landscape, consumer preferences and trends. Based on the research stage, S4 plans
the next steps into the market, adapting its strategy mainly in terms of portfolio evaluation and
product choice (bearing in mind the shelf-life issue) to local demand and negotiate procurement
and logistics terms with potential clients.
Depending on the country, the products will be delivered over direct or indirect exporting.
In the first case, S4 will directly sell to a customer (whether distributors or retailers) in an
international market, usually local retailers or Portuguese clients set in loco with their own
stores. While, through indirect intermediation (such as the United States case), the company
uses trading companies or export management companies set in Portugal to deliver its products
to the final customers in foreign markets. Portuguese communities, the so-called mercado da
saudade15, play an important role in S4’s international expansion and presence as the company
12 Non-profit organization that supports the agri-food Portuguese businesses in their expansion plan. 13 Trade & Investment Agency that contributes to the success of Portuguese companies in foreign markets or exporting operations. 14 For instance, S4 excludes Nigeria from the internationalization plan due to extreme political and legal instability. 15 International markets that represent a connection between Portuguese communities across the globe whose purpose is to provide them typical
Portuguese products.
19
relies on them to spread the Portuguese cheese tradition abroad, having the highest linkage to
the domestic country.
In light of the abovementioned entry mode, S4 does not develop any coordinated
partnership in terms of business structure16. Hence, taking into account the mature stage of the
industry life cycle in which S4 lays and the current expansion approach, there is a need to
consolidate the presence abroad and gain more control over the international operational model.
3.5.2. International Drivers & Goals
Although the company already exports to many countries, this cannot be considered as a
deterrent factor for the internationalization expansion, since this presence highly lacks on
consolidation, namely on following a better-structured mindset and priorities’ definition,
having a higher control over the process, and a general focus on expanding globally with a
defined organization and product strategies.
In the next years S4 aims to pursue a continuous and sustainable global strategy’s growth
by exploring new markets and consolidating the existing ones, spreading the unique Portuguese
value around the world with existing and innovative new products aligned with market trends.
Following the Ansoff Matrix, in existing markets, the approach will lay on a market penetration
or product development (such as with the most recent bio line), as well as a market development
strategy in new untapped countries (see Appendix 31). Particularly, new partners with solid
business structures and within their line of action will play an important role in the company’s
internationalization strategy since they can more effectively guarantee a dedicated commitment
of introducing, distributing and placing the products in the destination markets. The company’s
preferences among potential markets vary with the United States considered an interesting
potential country to better explore given its market size, followed by some highly diversified
and attractive countries such as UAE, Morocco and Saudi Arabia, where the attention and
16 Information provided by S4.
20
demand for dairy and cheese products are expected to progressively grow. Moreover, in the
upcoming years, the company seeks to enhance competitiveness by acquiring market
knowledge through a developed relationship with existing and new business clients and a more
consolidate brand image, awareness and recognition. In addition, enlarge the Cardex volume in
active customers, drive sales, increase profits, diversify risk and gain more control over the
entire international process are goals the company aims to achieve.
Bearing in mind the ongoing COVID-19 pandemic, which has inevitably affected some
markets, the worldwide dairy and cheese consumption was not significantly affected based on
the results presented in the Global Cheese Market Overview which highlights the decrease in
volumes, but the increase in value in 2020. To confirm, several players17 in the cheese market
grew even after the outbreak and more than half of Portuguese consumers stated they were
purchasing the same quantities as before (Portugal Foods 2020). However, some adaptations
might be necessary depending on the market S4 is going to further explore.
3.5.3. Internationalization Readiness
Based on an overall evaluation of the company resources, capabilities, competitive
advantages and current internationalization approach and objectives S4 has an opportunity for
a further expansion in foreign markets. More specifically, the level of the company’s readiness
to internationalize was assessed through the application of the CORE model, which is defined
as a self-assessment and diagnostic tool of a company’s readiness to extend its business and
operations to international markets, also evaluating the capacity of the firm to export certain
products among its portfolio (GlobalEDGE 2020). The test analyses the organization and
product readiness namely through the following dimensions: Competitive Capabilities in
Domestic Market, Motivation for Going International, Commitment of Owners and Top
Management, Product Readiness for Foreign Markets, Skill, Knowledge & Resources and
17 Private Labels, Lactalis and Bel Portugal.
21
finally Experience and Training. Based on a mutual assessment by the Team and the Company,
the results showed a MODERATE score of S4’s readiness to expand (see Appendix 32)
(GlobalEDGE 2020). It was possible to notice that some adjustments might be necessary for
future expansions: although the Product Readiness highlighted the need for more emphasis in
training and after-sales support service, a lower willingness to modify internal tangible
attributes of the products (such as flavour, texture, etc.) and an overall less strong recognition
compared to leading competitive products, S4’s broad portfolio with several distinctive
attributes might easily be selected according to foreign consumers’ trends and successfully
penetrate distinctive markets. Moreover, in terms of Experience and Training for international
marketing, improvements related to management experience abroad, participation in trade fairs
and overall organizational structure’s efforts are highly suggested.
In the general assessment the company seems ready to explore new markets showing a high
motivation for going international, a deep commitment of Owners and Top Management and
the necessary competitive capabilities in the domestic market which enhance the likelihood of
success abroad, as well as the right skills, knowledge and resources to make the expansion
effective and worth.
37
5. International Market selection II: In-depth country analysis
In order to assess whether the selected markets United States, Germany, Canada and Japan
truly represent a potential opportunity for S4 and culminate the final suggestion, an in-depth
country analysis grounded on Domestic Market Overview and Trends, Retail Landscape and
Market Sales Potential, Entry Conditions, Porter’s 5 Forces and lastly Contacts was performed.
5.1. United States Analysis
Domestic Market Overview and Trends
Cheese is the largest dairy segment in the United States and remains one of the faster-
growing ones, reaching 3884,9 thousand tones consumed in 2019 and forecasting to grow in
the next five years by 3,6% (Euromonitor International 2020). The COVID-19 is expected to
impact this growth making it drop to about 2% per year prior pandemic, yet remaining one of
the most popular dairy categories (European Commission 2020). 78% of the market volume is
represented by unprocessed cheese, which is divided into hard and soft cheeses, being the
preferred when compared to the processed category that continues to shrink while the other
grows (European Commission 2020). The U.S. is the 2nd largest cheese producer with 5,950
thousand metric tonnes produced in 2019 (see Appendix 20) (Statista 2020), over 300 varieties
mainly made from cow's milk and with American as the most common processed cheese type
produced and consumed (European Commission 2020). In 2019, 40% of the total cheese
production in the United States was American cheese and 60% other types (Statista 2020).
The value and volume production’s capacity shows the country’s great potential, however,
U.S. consumers also have an appetite for imported cheese (in 2018, among the 71 countries
analyzed for the final ranking it positioned 7th in the world in terms of cheese imports with a
trade value of 1303,56 USD million) (OEC 2018; Euromonitor International 2020). Notably,
the EU accounts for 75% of the total imports, with Italy as the main place of origin, and after
France, Spain and the Netherlands (European Commission 2020). In 2019, most of the imported
38
cheese eaten by Americans were regular types18 with approximately 200 million consumers. 20
and 5 million people appreciate more low-fat cheese and fat-free, respectively (Statista 2020).
One of the reasons for the continued rise of cheese consumption – 11,8 Kg per capita on
average in 2019 and projected to rise to 12,2 Kg in 2025 – is the increasing
globalization, adaptation to food consumption’s habits, premiumization trends and the shift
towards a multi-ethnic cuisine, which influenced the ascent of new types of cheeses (AGMRC
2020). Indeed, in terms of consumer’s preferences, an increasing consumption was noticed in
specialty19, artisanal20 and farmstead cheeses21 (the European-style cheeses) since distinguished
attributes such as place of origin as well as bold flavours correspond to a sign of differentiation
and a quality gage (Euromonitor International 2020). Specialty cheeses (both imported and
domestic) are growing five times quicker than the entire cheese market over the last 10 years
due to U.S. population travelling to foreign countries and experiencing distinctive types of
cheese, European tradition emphasis on food services in America (such as the fine dining),
successful merchandize in retailers, interest in ethnic food and the overall demand for robust
flavours (AGMRC 2020; Euromonitor International 2020). As a centrepiece during gatherings
cheese is driving premium eating experiences, especially among unprocessed cheeses, that are
also increasingly used for cooking (European Commission 2020). This premiumization of
cheese has been having a particular effect on the unprocessed category, namely European
cheeses as mozzarella, parmesan, gouda and cheddar which are among the most preferred since
2016 as well as more traditional like Havarti (Danish), Kasseri (Greek-Turkish) and Cabrales
(Spanish) that are increasing in demand (Euromonitor International 2020; European
Commission 2020). In fact, provenance and place of origin are becoming critical buying criteria
among more premium cheeses (European Commission 2020).
18 Made with whole milk containing 4 percent milk fat. 19 Specialty cheese translates high quality, exotic or traditional origin, distinguished production process, and more premium packaging,
distribution channel and availability (not in scale). Includes natural flavours and texture profiles, or flavourings (herbs, spices, among others). 20 Hand-made production, in small quantities, where tradition is core. Cheeses made through several types of milk and vary in terms of tastes. 21 Farmstead cheese is an artisan cheese type originated from a farm which uses exclusive milk from the farm’s herd or flock.
39
Furthermore, convenience and suitability for the occasion constitute key drivers for
cheese’s purchases, particularly as cheese as a snack trend increases. The cheese industry in the
United States has been also influenced by a growing demand for snack-sized and healthy cheese
products. As the market gets more mature with also an increasing use of premium cheese for
cooking and gatherings, cheese in convenient formats for snacking and also for preparing meals
is greatly appreciated. The easy usage and the on-the-go packaging have served positively both
the unprocessed and the processed cheese, in this last case, an example is Babybel which
combines taste and format. This trend has given the opportunity to softer cheeses in the
unprocessed market (such as grated and cottage cheeses) to broadly benefit from the new
expectations of consumers wishing to save time with snacking conveniently packaged cheeses
and the youngest people who desire to have a greater protein content valuation of their meals.
Although the premium and snacking trends exist and are growing, many consumers are
still highly driven by low price and discounts. A survey conducted in 2017 already revealed the
importance of quality (80%) as the primary feature in food purchasing decisions, however,
followed by value for money (72%), low price (49%) and lastly brand (43%) (Statista 2019).
Retail Landscape and Market Sales Potential
The cheese market in the United States has faced a particularly constant evolution over the
last years in retail value (-0,01% 2015-2019 CAGR) reaching 24188,2 USD million in 2019
and expected to decrease by 1,2% in the next five years. With regard to retail volume, in 2019
the country reached 1884,2 thousand tones sold, experiencing a positive growth (0,01% CAGR
2015-2019) and forecasted to decrease by 1,7% over 2020-2025. In the same year, the cheese
sold through large modern retailers - discounters, hypermarkets and supermarkets accounted
for 88,6% of the total market retail value. This result is significant and depending on the price
level and the large number of retailers that exist, S4 has several opportunities to place its
products. In particular, supermarkets and hypermarkets drive retail sales with 42,9% and 39,5%,
40
respectively, followed by discounters (3,8%), independent small grocers (2,9%), convenience
(1,5%) and forecourt retailers (1%) (Euromonitor International 2020).
In order to estimate the cheese market sales potential in the United States, three main
factors were taken into consideration, namely consumption value per capita, target population
size and forecasted projections (see Appendix 42). Assuming there is no segmentation in terms
of the target population in the cheese segment, the U.S. population as a whole was
considered. Based on the previous market identification analysis, the total market sales potential
in 2019 was 24125 million USD, forecasting to reach 25158 million USD by 2025. The growth
between 2019 and 2025 is relevant, also considering the impact of COVID-19 pandemic.
Entry Conditions
The United States has a strong economic and politic freedom, and commercial openness.
It takes part in several organizations and has signed important treaties, namely APEC, A.T.A.
Convention22, HS Convention23, NAFTA, OECD, WCO and WTO, which enhance the easiness
of doing business. In addition, the Logistics performance index - 4 out of 5 - also indicates that
the country has strong infrastructures and services associated to make the supply chain entirely
reliable. Portugal and the United States have been developing a strong relationship in terms of
commercial trade in the past few years with a bilateral trade in goods and services that reached
8,9 billion USD in 2019, 6% higher compared to the previous year (AgroCluster 2020). To
further confirm, the country is recognized as the 5th market destination for
Portuguese goods exports and largest partner outside European community (Instituto Nacional
de Estatística 2020), with cheese accounting for 12% of total Portuguese exports to the United
States in 2019 (GPP 2019). Moreover, in the midst of COVID-19 outbreak, the U.S. market
was the only recording a positive result in the Portuguese sales of goods (Jornal Económico
2020). This market could become even more critical to the Portuguese exports with the
22 Customs Convention on the temporary entry of goods. 23 International Convention on the Harmonized Commodity Description and Coding System.
41
completion of the Transatlantic Trade and Investment Partnership Agreement, which has
been arranged between the EU and the U.S. since July 2013 and aims to create the largest free
trade area in the world, by eliminating the barriers commercial, customs and non-customs
applied on a wide range of sectors of the economy and harmonizing regulations. In light of this,
Portuguese companies like S4 could benefit from an accelerated internationalization process.
Currently the penetration to the U.S. market needs to follow some approaches and
requirements, namely selecting trustworthy local importer with an import license, obtaining
the Certificate of Label Approval, paying all applicable federal fees and customs duties, and
requires necessary documentation such as the certificate of Origin, Export Invoice, Transport
document (i.e. BL and Air Waybill), Freight Policy ( contract of maritime transport under a
contracting regime free whose purpose is the transportation of large volumes of merchandise in
complete ships) and Insurance Policy (AgroCluster 2020). In addition, the labelling and
packaging need to follow the Code for Food Regulations, requiring necessary adjustments and
the attention to specifications. In general, the inspection time and the fees to be paid vary
depending on the type of merchandise and/or the mode of transportation, however, the cheese
industry is subject to relatively high average rates and quantity restrictions (AgroCluster 2020).
A tariff’s increase of 25% ad valorem for agricultural products has been applied by Washington
since October of 2019 to several products from EU. In Portugal, the application of this
additional duty will have an impact on cheese exports to the United States (GPP 2019).
Moreover, ongoing temporary tariffs on European cheese are leading to several concerns for
both European producers and the overall cheese industry (European Commission 2020).
Porter’s 5 Forces
42
The following analysis aimed to assess the business competitiveness and external forces
that affect the cheese industry in the United States to identify how it can impact the profitability
of S4 and adjust the future suggested strategy accordingly.
Concerning the threats of new entrants, barriers to entry are medium. The American
consumer appreciates diversified flavours hence the main capital expenditures to incur may
come from innovation processes. More taxes certifications are appearing with significant
values, creating some concerns in particular for European exporters. Government policies are
restrictive and the exports of products from S4’s side might take time since the importers need
to have authorization. However, large wholesalers and importers already own the necessary
documents and knowledge of the market which might accelerate the process. The access to
distribution channels is easy due to the existence of many different actors in the market. Besides,
given that the market is fragmented, it is assumed that Brand loyalty is relatively low, as also
confirmed by the openness of the market to new products, the ongoing interest of many buyers
towards low price mainly due to the power of private labels, resulting in low switching costs.
Bearing in mind all the abovementioned considerations, the threat of new entrants is assessed
to be moderate. Although there are a lot of players operating (more than ten thousand including
big private labels) offering pleasing prices and diversified portfolios, which can discourage
smaller companies, the United States continues to be an attractive market with new
opportunities to explore, namely due to premiumization trend, appreciations for European-style
cheeses and artisanal offers. Concerning the threat of substitute products, as cheese is a very
specific product with its uniqueness, it was identified as low, however, the number of direct
competitors (companies operating in the cheese industry) is high and should be taken into
account. In fact, the large population size and the medium differentiation given by big players,
in particular, the ones focus on price, enable the final consumers to switch to other companies.
Given that retailers will be the final distribution channels for S4’products, these play also as
43
buyers in B2B terms. The high number of chains presented in the United States and the
opportunities in several distribution channels enabled to conclude that the power of these B2B
buyers is low, however, the overall bargaining power of buyers, both B2B and B2C, is
considered to be medium. Analyzing the suppliers’ power, it also cannot be considered a threat
since the American market is highly saturated when it comes to the number of companies raising
cattle and in dairy products manufacture (65 508), hence companies can continuously make
adjustments on the suppliers according to their demands (ORBIS 2020).
Finally, United States has some important actors in the cheese market, namely Kraft Heinz
(24,1%) and the leading private labels which record an ongoing growth since 2015 (32,9% to
2020 37,7%), followed by Sargento Foods (5%) and the retailer Walmart (3,7%). Kraft Heinz
has succeeded in securing its position with a wide range of goods including diversified cheese
categories, ranging from economic options to more premium (Euromonitor International 2020).
Even if the retail value of the cheese industry is going to slightly decreased in the next years (–
1,2% from 2020-2025), the overall consumption volume is increasing by 3,6%, hence more
players will try to consolidate their presence in the market and new small companies as S4 will
try to enter, thus the rivalry among competitors can be seen as high. The market in the United
States is really fragmented, meaning that the rivalry can be particularly significant among big
players, however guaranteeing room for smaller companies to enter and satisfy niche targets’
needs (Euromonitor International 2020).
Contacts
Furthermore, it might be crucial to contact responsible entities to succeed in exportations
operations to United States, namely Direção Geral de Agricultura e Veterinária, United States
Department of Agriculture, Animal and Plant Health Inspection Service and Food Safety and
Inspection Service. Finally, AICEP Portugal Global (Agência para o Investimento e Comércio
44
Externo de Portugal)24 and the Cheese Importers Association of America25 may also play a key
role in facilitating the trade between the two countries.
5.2. Germany Analysis
Domestic Market Overview and Trends
The German cheese market is the 4th largest in the world with 999,5 thousand tonnes
consumed in 2019 and it is forecasted to grow in the next five years by 0,75%. In addition, a
high consumption per capita at 12,04 Kg is registered, with 78% of the total market represented
by the unprocessed category which is projected to grow at 1,6% CAGR vs 2,4% of the
processed one (Euromonitor International 2020). Germany is the highest cheese importer in the
world accounting for 4379,21 USD million in trade value in 2018 with a significant presence
of foreign products, especially Dutch, French, and Italian cheeses that represent almost 58% of
the total cheese imports (OEC 2018).
In terms of most preferred cheeses in the country, gouda, a cured cheese, lead with more
than 300 thousand tonnes sold in 2019, followed by the cottage cheese category with almost
280 thousand tonnes and by the edam cheese with 224 thousand tonnes. From the most relevant
cheeses by type, both gouda and edam cheeses volumes sold have grown from 2018 to 2019,
while cottage cheeses have decreased. From all type of cheeses, the one with the highest growth
from 2018 to 2019 was the cream and double cream cheeses with a 17% YoY growth rate
(Statista 2020). Consumers in Germany are price sensitive, hence the elasticity of the product
is high as they are used to a hard-discount approach. Although the country remains a market
focused on price, a growing range of consumers is giving more importance to the high-quality
and civic statement, which is why gourmet cheese is a growing opportunity to explore. This
premiumization trend with niche markets has high relevance in Germany with smaller players
24 AICEP has an extensive network of more than 200 professionals around the World, aiming to develop promotional activities of Portuguese products in foreign countries, and helping to assist Portuguese companies on the implementation of their business plans in foreign markets. 25 Responsible for the majority of cheese imports into United States aiming to facilitate the entrance of foreign companies into this market.
45
continuing to exploit opportunities in more distinctive “exotic” cheeses such as Bulgarian
cheese or goat cheese that are becoming popular. This reveals a chance to implement specialty
cheeses or other types from goat and sheep in different product lines. Moreover, the concern
about sustainability and health is driving consumers to change their purchasing decisions,
opting for more organic, lactose-free products or even vegan options, paying also more attention
to package and fair trade. Notably, the organic food category was growing the most in recent
years (7% from 2018 to 2019), representing the 2nd largest organic market in the world with 4
014 million USD (Euromonitor International 2020) and 5,68% of the total food market (Global
Agricultural Information Network 2019). Some dairy companies intend to launch “flexible”
grilled cheese formats to cater vegetarians and flexitarians26, but also offer a desirable option
for consumers who do not usually have concerns about eating meat (Euromonitor International
2020). Furthermore, fast-paced and individualist society – single households – are growing,
hence the demand for convenience, ready-to-meal and clean label foods is following this trend,
revealing a chance for grab and go cheeses and more convenient packages (AICEP 2019).
Retail Landscape and Market Sales Potential
In 2019 the German market reached a retail volume of 795 thousand tonnes, accounting for
8102 million USD in terms of retail value. It experienced a slight value decrease of 0,5% from
2018 to 2019, and it is predicted to remain quite steady in the next years (Euromonitor
International 2020; European Commission 2020). Given the current pandemic situation, in
2021, retail sales will face a slight dip in volume and value terms, after the spike observed in
2020, before returning to “normality” in 2022, with generally stagnating year-on-year sales
(Euromonitor International 2020). The country, traditionally one of the biggest food producers,
is more known by its retail chain than for food brands (AICEP 2019). In 2020, the cheese market
sold through large modern retailers – discounters, hypermarkets and supermarkets, accounts for
26 Growing plant-based diet contributing to healthier habits and lower carbon foodprint. Mainly vegetarian but allows meat occasionally.
46
86% of the total market retail value (Euromonitor International 2020). Besides the modern
retailers, the traditional grocery stores have 9,6% of market share, while the remaining market
is represented by mix groceries and e-commerce distribution channels whose representation is
quite irrelevant (Euromonitor International 2020). Depending on the price level and the number
of retailers that exist, there are different chains where S4 can place its portfolio depending on
the product choice (see Appendix 43). Aldi and Lidl are the most popular hard discounters in
Germany, Kaufland and Real the largest ones among hypermarkets (32 % and 23% market
share, respectively) and lastly, REWE and EDEKA are among the main supermarkets, selling
also a more gourmet assortment (Statista 2020). These retailers are also direct competitors of
cheese manufacturers considering the significant presence of private labels in the market. A
group of specialized retailers with gourmet and organic products are satisfying niches, placing
more premium cheeses such as cured cheeses, PDOs and organic references (AICEP 2019).
Considering the three factors consumption value per capita, target population size and
forecasted projections – the cheese market sales potential in 2019 was estimated at 8091 million
USD, growing at a CAGR 0,3% reaching 8240 million USD by 2025. The small CAGR can
be justified by the already high performance of the German cheese market and the upcoming
consequences of COVID-19 (see Appendix 44).
Entry Conditions
Germany is the 4th largest economy in the world and the major one in Europe with a critical
political and economic influence as well as strong respectable organizations that contribute to
the country’s stable position (World Bank 2020). The market’s international influence is
reflected by its presence in the NATO, G4, G7, and G20 organizations (Bundesregierung 2020).
Besides, the country is also a member of the OECD, WTO, and the EU, which enhances the
easiness of doing business and economic freedom in Germany, reflected by the score of 73,5 in
the Index of Economic Freedom, the 24th highest in the world (Heritage 2020). Establishing a
47
partnership with a local distributor, becoming responsible for logistic processes from the
moment S4´s products are in a certain country, is a desirable approach to international markets
to guarantee the transportation and logistics performance’s safety and success. Germany scored
the highest in Logistics Performance Index - 0,054 - meaning that the country provides solid
and reliable infrastructures to support a business along the entire supply chain, independently
of the entry mode that a company opts to apply (World Bank 2018).
As for food safety rules, considering Portugal and Germany are both part of the EU, S4´s
products already comply with the EU food regulations, hence it is not necessary any specific
adaptation to this market, rather than packaging and labelling adjustments. Regarding taxes
burden, within the members of the EU, any movement of goods and services is tax-free.
Particularly, cheese products are subjected to a reduced VAT rate of 5%, which, combined with
the free trade of goods, is a positive factor for S4 (European Commission 2020). Finally, the
high cheese market potential, the second position in the organic market and the GDP per capita,
which confirms a wealthy position (12th highest in the world), are undoubtedly favourable
conditions for an expansion to Germany (Euromonitor International 2020).
Porter ‘s 5 Forces
In terms of threats of new entrants, barriers to entry are low. In the cheese industry capital
requirements are relatively reduced since there are no mandatory specifications to accomplish
the majority of the market rather than just niches, that can be covered with some of the existing
products of S4, namely the cured-specialty line. The cumulative experience in the industry is
quite important given the specificities of the cheese market. In the German cheese industry, in
particular, brand loyalty is not that high since the costumers are highly price sensitive. Thus,
the switching costs are low. The access to distribution channels is easy considering there is a
wide network of retailers, especially modern grocery retailers who account for 86% of the
market, although some of these are direct competitors that can prioritize their own products.
48
Government policies are easy to comply with since most of standards and regulations are the
same in the entire EU. Hence, it can be assessed that, given the relatively low market barriers,
the threat of new entrants is high. Despite being difficult to differentiate from the competition,
S4 may explore the German niches and the growing organic market, taking also an advantage
of the existing contacts with retailers that operate in Portugal and Germany.
Overall, the bargaining power of buyers is also high: the number of customers in the
German cheese market is significant and it is expected to grow; the differentiation is medium
given that on one hand, the switching costs are low among the largest discounters since price-
sensitive customers tend to push the prices down. However, on the other hand, niche markets
demand for differentiated products. In S4’s specific case retailers are also buyers. The number
of players is high, in particular, there is a concentration in the largest chains hence the customers
can choose from a large number of options meaning the switching costs are low. There is also
the threat of backward integration, with many retailers producing their own cheese products
(private labels). Furthermore, the bargaining power of suppliers is low since there are a high
number of suppliers within the industry (1913 firms) (ORBIS 2020), meaning that several milk
producers can lower suppliers’ control over prices. If the current suppliers are not complying
with the demands switching to another provider turns out to be easy. The threat of substitute
products is low as cheese represents a special market: the demand for cheese is not affected by
the difference in price in the substitute product rather than within the same category.
Based on the analysis, it was possible to observe that the competition in the cheese industry
in Germany is high and the market is highly fragmented, with a significant number of
experienced cheese manufacturers. The market is also characterized by several foreign
companies, namely, among the largest non-retailer cheese producers the French Savencia (the
largest non-retailer in the market with also 9% of market share), Bel Groupe and Lactalis, the
Dutch Friesland Campina, the Denish Arla Foods and the well-known American Kraft Heinz
49
stand out. In addition, private labels as Aldi and Lidl actively lead the market with 31,6% of
value share in 2020 and have a critical impact in the market since big retailers compete directly
with the same cheese types, pushing manufacture brands to differentiate their products
(Euromonitor International 2020). The industry is predicted to increase in the next years, even
if at a low pace, considering also the reduced brand loyalty and barriers to entry, besides capital
requirements, the competition might increase as well. Hence, the intensity of rivalry among
competitors can potentially exist due to market saturation, with an ongoing market growth and
powerful private labels’ in particular in common cheeses’ categories, highlighting better
opportunities for SME’S like S4 among distinctive cheese flavours and textures.
Contacts
As part of the European Union Germany operates in the European Single Market that
establishes a free trade zone of goods, services, capital, and people between the 27 members of
the EU and some other European countries through bilateral agreements, meaning that S4 would
have to register their business in the Trade Office and Tax Office, as any other business in
Germany. Besides, the company can also establish contacts with AICEP, namely contacting the
delegate in Berlin responsible to aid Portuguese businesses abroad (AICEP Portugal Global
2020). In addition, other useful entities may be contacted to help S4 in its internationalization
plan, such as the Portuguese Embassy in Germany, Germany Trade & Investment which helps
foreign companies establishing themselves in Germany and the Association of the German
Dairy Industry (MIV), whose purpose is to support the whole dairy industry.
5.3. Canada Analysis
Domestic Market Overview and Trends
Canada is one of the 5th largest global cheese producers after EU 27, United States, Russia
and Brazil, accounting for 519 thousand tonnes produced in 2019 (Statista 2020). Even if the
country registers a huge production capacity, imports account for 12% of the total cheese
50
market retail value, showing that consumers also value imported cheese from different origins
and with distinctive flavours, such as specialties (Euromonitor International 2020; OEC 2020).
Moreover, the cheese consumption per capita in 2019 accounted 10,3 Kg and the total volume
consumption 385,8 thousand tonnes, which is projected to increase at a 4% CAGR 2020-2025
(434,74 thousand tonnes by 2025) (Euromonitor International 2020). In Canada, the cheese
production in 2019 was mainly dominated by specialty cheeses, the most common varieties are
cream cheese (21,6 %), followed by the cottage (11,6%) and parmesan with 6,3% (Statista
2020). In terms of consumption, processed cheese and unprocessed cheese are both performing
well, however, it is notable that 86% of the market is represented by unprocessed cheese and
only the reaming 14% belongs to processed. The pandemic situation will affect sales in 2021,
especially for the processed category, but the situation will remain stable afterwards. The
overall projections highlight a 4% increase in sales with the unprocessed category (hard and
soft cheeses) leading the market. This can be explained by the ongoing healthy trend that
Canada is experiencing with an increasing number of consumers opting for more natural and
less transformed products (Euromonitor International 2020).
In fact, 2020 is a paradoxical year for Canada. Even though the pandemic situation will
lead to a decrease in 2021 results as mention above, the rise of at-home cooking is expected to
be one of the reasons for 2022 onwards positive performance. However, the situation represents
a risk for the cheese industry since consumers are affected by the economic context and started
looking for lower price options. Indeed, impulsive purchases and less adventurous consumption
are increasing due to a shift towards familiar products and spreadable, sliced and grated cheese
types due to their easiness of usage (Euromonitor International 2020).
Another relevant trend is related to consumers healthy and sustainability concerns. In fact,
they are becoming more and more aware of the environmental impacts of their purchasing
decisions, hence they started demanding for more plant-based, organic and lactose-free
51
products, as well as vegan options (nut-based, coconut-based winning cheeses), leading
retailers to place them in higher quantity at stores, accordingly. Notably, Canada is one of
the top 10 countries in terms of organic packaged food market value, which might represent a
good opportunity for S4 to explore (Euromonitor International 2020). Furthermore, some other
relevant trends to highlight include cheese snacking size options to satisfy younger targets:
increasing e-commerce usage, which allows to place and discover a wider and new tasting offer
such as specialty cheeses; and finally, the demand for distinctive and stronger cheese flavours
such as goat and sheep (Euromonitor International 2020).
Retail Landscape and Market Sales Potential
As Canada is among the best countries in regard to the total consumption of cheese, the
retail sales are forecasted to faster increase in the next five years both in terms of volume (1,8%)
and value (1,7%). In 2020, cheese products were mainly sold through modern grocery retailers,
namely Supermarkets, Hypermarkets and Discounters holding 78,21% of the total cheese sales.
Independent small grocers, within the traditional channel, are also an important selling place
for S4 as they represent 9,1% of distribution channel for cheese consumption and in which the
usual customers’ profile evidences the appreciation for the place of origin and tradition of the
products (Euromonitor International 2020).
The total market sales potential in 2019 was 3658,31 million USD, forecasted to
reach 4351,33 million USD by 2025. The expected net evolution of the market between 2019
and 2025 highlight great opportunities in the Canadian market (see Appendix 45).
Entry Conditions
Canada is a stable economic, politic and open market where trade, investments and
business opportunities are well established as confirmed by the high score in the indicators
Index of Economic Freedom (87,9 out of 100) and Ease of Doing Business (79,6 out of 100).
Furthermore, the 65% value of Trade (as a % of GDP) enhances the Canadian openness to
52
foreign importations. Particularly, Portugal and Canada have a consolidated trade relationship:
in 2017 Canada was Portugal's 9th biggest goods trade partner outside the EU (European
Commission 2017). Established trade agreements such as CETA27 facilitate the connection
between Canada and EU through lower trade barriers as well as the elimination of more than
99% of custom tariffs and higher food safety, workers' rights and environmental standards.
Moreover, it contributes to the greater availability of offerings at more convenient prices,
such as flavoured burrata, sheep ricotta and more premium specialty cheeses (European
Commission 2020). Portugal is among the countries beneficiating from the new trade
agreements that came into force. Based on the previous market selection analysis, Canadian
logistics, commercial infrastructures, transport services and burden of customs procedure are
efficient. Positive soil conditions, large reserves of natural resources and a highly educated
workforce are also aspects to be considered. Furthermore, Canada has been experiencing an
average cheese market annual growth of 3% since 1993 (European Commission 2017).
Some of the requirements to enter in the Canadian market include firstly find an exclusive
and local importer, obtain a Cheese Import License from the CFIA and pass through the Food
and Drugs Act28 to guarantee the products’ safety and quality (Government of Canada 2020).
As stated in CETA, all dairy products exporters to Canada have to contact the Global Affairs
of Canada and the Canada Border Services Agency for import permits, tariff classification and
customs information, respectively. Moreover, there are specific tariff quota systems for some
European products, particularly dairy and meat. Above this quota, Canada maintains prohibitive
duties on the majority of cheese imports at a pace higher than 245 per cent (European
Commission 2017, 150).
27 Comprehensive Economic&Trade agreement which helps the imports of EU products by cutting tariffs and benefitting people and businesses. 28 Primary federal legislation applied to all foods sold in Canada, considering domestic and imported products (European Commission 2017).
53
Porter’s 5 Forces
Concerning the threats of new entrants, barriers to entry are moderate. The market
concentration is high with 82,4% of the cheese market divided among four big players (Saputo,
Agropur Alimentaire, Lactalis Canada and Kraft Heinz), which may act as a threat to enter,
however as demand for less common types of cheese increases (such as specialties) there is
space to explore these niches. The Canadian cheese market experience is strong since it is in a
state of “mutation” towards a more responsible and higher valuable product acquisition, hence
entering in the market might demand monetary investments in innovation due to the rise of
plant-based, sophisticated and distinctive tastes, that used to be covered by only smaller
companies and now are getting the attention of the major players. Moreover, a strong domestic
production base may be a potential limitation to foreign imports from the EU. The supply
management system supports the dynamics of the market limiting opportunities for external
manufactures when entering Canada. However, even if the availability is reduced, a good
demand for EU cheeses exists. The improved conditions that resulted from agreements such as
CETA depend on the market’s demand for foreign cheeses, which represents a positive point
for S4 potential expansion to Canada. Even though the access to distribution channels may be
limited by the strength of the biggest players that control the majority of them, several smaller
players are operating in the market, enhancing the potential opportunities to explore niche
channels (such as traditional groceries) and e-commerce. Given that the barriers to entry are
moderate the threat of new entrants follows the same line.
As Canadians get older they are less likely to consume dairy goods and express loyalty
towards local or domestic production. In addition, the older generation continues to value more
quality over price hence for this target group brand loyalty and switching costs are higher.
Therefore, Brand loyalty is divided: even if many customers are open to trying new
differentiated products, the older generations continue to show some reluctancy, sticking to
54
local or traditional producers (European Commission 2017). Switching costs are moderate
since the older generation might miss some good opportunities such as special treatment
(special offers, discount) by switching to other retailers. Overall, the bargaining power of
buyers is medium based on the concentration of the market (between the four biggest players),
but also on the consumers’ demands for tailored offers. The bargaining power of retailers (also
buyers) is high considering the concentration and number of them. In Canada private label share
is relatively low (5,3%) and there are no expectations to grow in the following years, meaning
branded products are highly appreciated and showing that the threat of backward integration is
relatively low, since retailer brands do not have an active role in the market. Furthermore, the
threat of substitute products is low. However, some of the trends that Canada is experiencing
must be considered, especially the one concerning the shift towards plant-based options that
can lead consumers to purchase them instead of regular cheese. The Bargaining power of
suppliers is also low due to the high number of milk suppliers (10,371 dairy farms in 2019)
(Government of Canada 2019), enhancing the possibility to switch between existing ones.
Finally, the market is highly concentrated, with 4 top players accounting for 82,4% of the
total market: Saputo (25,4%), Agropur Alimentaire (18,7%), Lactalis Canada (18,2%) and
Kraft Heinz (17,7%). The rivalry among competitors is relatively high between the 4 top
players mainly because they are actively investing in innovation in order to accompany all the
market trends for both niches and more general consumers, particularly imitating the approach
to the market of smaller players, namely among the vegan, more natural and sustainable
products’ development. However, given that the rest of the market is divided among less big
companies, the expected retaliation is relatively low for SMEs like S4.
Contacts
As a first approach S4 may establish contact with AICEP Toronto and benefit from
Portugal Canada Chamber of Commerce and Industry, which helps to promote and facilitate
55
bilateral trade, investment and business development between Canada and Portugal. Their main
goal is to sustain the international expansion of Portuguese organizations, but also foster the
Portuguese exports to Canada (The Portugal Canada Chamber of Commerce and Industry
2020). Moreover, it is important to highlight that this foreign country plays an active role in
multilateral forums, demonstrating their commitment to trade sustainability and prosperity
being a member of G7, NAFTA, G20, OCDE, OMC, etc. (Canadian Government 2020).
5.4. Japan Analysis
Domestic Market Overview and Trends
The Japanese traditional cuisine usually does not incorporate many dairy products, hence
there is not an education regarding cheese as in several European countries (EU-Japan Centre
for Industrial Cooperation 2017). However, the cheese category is expected to increase
progressively, and notably in 2019 had already registered positive results with a total volume
consumed of 247,9 thousand tonnes and forecasted to grow by 3,42% CAGR in the next five
years, reaching 270 thousand tonnes by 2025. The market is balanced within both main cheese
categories (unprocessed and processed), namely hard cheese in unprocessed, which indicates
good opportunities for both. Despite a relatively low consumption per capita in 2019 (1,96 Kg)
compared to all the other countries previously analyzed, the demand far outweighs local
production, which makes Japan distinguish itself for the number of cheese imports mainly
cream cheese as well as specialties. Additionally, 35% of the imported natural cheese is used
for domestic production (Euromonitor International 2020; Cheese Market News 2015).
Japanese consumers’ key purchase drivers include the dairies’ quality and health added
value. However, the price also frequently affects the purchasing decision since a higher value
might discourage people to try and buy particular cheeses, which can be seen as an obstacle for
cheeses’ importations as they usually have higher prices than the domestically produced ones
(European Union 2019). Flavour-wise, softer and mild cheeses are the most preferred ones due
56
to their low level of salt, hence processed cheese, as well as mozzarella and cheddar, are highly
appreciated. Nevertheless, stronger flavours are usually less popular and consequently the
availability in the market is lower. In fact, sheep and goat cheeses such as feta are not highly
valued due to their unique and slightly rich flavour (European Union 2019). The consumption
of soy products as tofu, natto, and soy sauce is particularly valued among the Japanese culture.
In this sense, many adult Japanese citizens shift towards plant-based dairies as an alternative to
milk to avoid digestive concerns (European Union 2019). It is also worth to mention that most
Japanese are lactose intolerant, however, the market does not pay the necessary attention to this
demand showing a limited availability of lactose-free dairy products (European Union 2019).
Health concerns have been particularly highlighted after the COVID-19 outbreak with a lot
of consumers paying more attention to their eating habits, which positively affects the cheese
sales. Cheese has increasingly been perceived as a healthy good given its benefits related to
rejuvenate blood vessels and as a rich calcium’s source. Thereby, as Japan has a rapidly ageing
population, this can potentially increase the cheese consumption (European Union 2019).
The domestic cheese market continues growing driven also by the ongoing demand of
consuming cheese as a snack to eat at home or during social gatherings, as well as a cooking
ingredient. In addition, as the Japanese wine consumption increases, namely after 2015, the
cheese category has been registering a steady rise since it is one of the best complimentary
products (Cheese Market News 2015). Finally, cultural issues highly influence the purchasing
trends in Japan as many buyers intend to show social status. The tendency is to buy small
luxuries, with Japanese paying a lot of attention to finishing touches, preferring smaller serving
sizes with quality. Notably, colours in Japan are attached to emotions having symbolism, hence
the labelling and branding must be considered (European Union 2019).
57
Retail Landscape and Market Sales Potential
In Japan, retail sales are predicted to positively grow in the next years. With a value of
2019 at 4037,7 USD million the forecast is to increase by 2,8% over the next five years.
Accordingly, volumes will rise 1,8% by 2025 (Euromonitor International 2020).
Multi-layered distribution is usually the main channel model in the Japanese market, where
wholesalers, producers, traders and retail chains have a wide networking and active
relationships among them. Within the retail sector, most dairy products are present in grocery
retail chains (57,1%), being supermarkets the biggest segment (49%), and after convenience
shops (6,7%), with a very low representation of traditional grocery stores that account for only
1,4%. Besides, mix retailers have also a significant presence in the market, with 31% of market
share (Euromonitor International 2020). Some of the top largest supermarkets in Japan are
AEON, Ito Yokado and Familymart UNY Holdings and potentially S4 might directly sell to
them, however bearing in mind the eventual necessity to provide large volumes as well as
respect specific criteria for imports and sales that stores impose (European Union 2019).
It is crucial to mention that domestic and imported cheeses’ distribution channels vary,
while the first is mainly found in convenience shops and supermarkets, the second ones are
placed in more specialized stores. The number of convenience stores in the country has been
increasing due to its recent popularity with Ready-to-Eat Meals, being the main operators:
Seven Eleven, Family Mart and Lawson. Moreover, the popularity of the Japanese e-commerce
channel has been increasing, with Rakuten, Amazon Japan, and Yahoo! Japan Shopping as the
key companies in this sector (European Union 2019). Notably, the total market sales potential
in retail value in 2019 is 4037 USD million, is expected to reach 4945 million USD by 2025.
The forecasted CAGR (3,44%) reflects the increasing demand for cheese in Japan regardless of
the COVID-19 effects (see Appendix 46).
58
Entry Conditions
Japan is the 30th freest economy in the 2020 Index, with an Economic Freedom score equal
to 73,3, that had increased by 1,2 points mainly due to an improvement in fiscal health (Heritage
Foundation 2020). Among several countries located in the Asian-Pacific region, Japan ranked
8th, being its overall score significantly above the regional and world averages (Heritage
Foundation 2020). In terms of EU agricultural exports, Japan is in the top four, being the 4th
biggest country. The tax burden percentage on total domestic income equals 30,6 which might
not be the most positive indicator. However, offers regarding subsidies, tax credits, and other
incentives are given by the Japanese government to attract foreign investments (Heritage 2020).
Moreover, the market in Japan faces high regulations, constituting a threat to European
exportations (European Commission 2019). The most critical challenges are both tariff and non-
tariff requirements, namely technical issues and regulations, complex and long procedures and
high costs of compliance. Nevertheless, the recent EU-Japan Economic Partnership
Agreement29 will contribute to the foreign access to the country, excluding or reducing tariffs
and overcoming non-tariff challenges. In this sense, the EPA will potentially benefit EU
exportations to the Japanese market, also for key agricultural products, processed agricultural
products and cheese (EU Business in Japan 2018; European Union 2019).
Porter’s 5 Forces
In the threat of new entrants’ analysis is observed that the barriers to entry are relatively
high. Firstly, high capital requirements might be needed, considering that there is a preference
in the market for high-quality and more specific cheeses (for instance lactose-free) and R&D
investments may be necessary to develop new and innovative products thus matching the target
demand. Moreover, the cumulative experience in the market based on previous
acknowledgement is crucial to succeeding in meeting new market trends and preferences. The
29 EPA is an economic arrangement that eliminates barriers to the free movement of goods, services, and investment between countries.
59
Japanese cheese consumers tend to look for high-quality products, that reflect a status, meaning
they care about the brand showing their high brand loyalty, hence big switching costs as well.
As for the access to distribution channels, there is an extensive network, however, some
requirements are needed (for instance in the supermarkets – the biggest channel – might be
necessary to offer large volumes and specific criteria for imports), which might represent an
obstacle when trying to access these channels. Government policies concerning food regulation
are strict especially compared to EU standards. For companies in the dairy industry a certificate
for animal products obtained from a relevant authority is required when doing business in Japan.
New AQS provisions, set in 2017, defined new regulations for inspecting dairy goods, but not
applicable to any processed products (European Union 2019). As for taxes, the EU-Japan trade
agreement facilitated the trades of goods between the two parties in particular products like
cheese, with an import tax of 30%-40%, show a higher openness to enter in the Japanese market.
It is concluded that the threat of new entrants is medium considering the market is growing
and is likely to attract more companies, although the barriers to enter the market are high.
The bargaining power of buyers is perceived to be high. The number of customers in the
Japanese market is low, however, it is forecasted to significantly rise in the upcoming period.
The differentiation level is relatively high considering there is a demand for high-quality
products with specific attributes, still, some consumers tend to push prices down and the EU-
Japan trade agreement might support it. As previously stated, in S4 perspective it is also
important to consider retailers as buyers. Considering the wide diversity of retailers, with many
alternatives growing, such as the convenience stores, non-grocery specialists, and e-commerce,
the bargaining power of retailers is medium, since the high concentration in the market for
supermarkets should also be considered. The threat of backward integration in the market can
be disregarded given the preference for high-quality products over private labels. As for
suppliers, their bargaining power is medium, based on the number of companies in the
60
operating of dairies and cheese making industry compared to the ones raising dairy cattle and
manufacturing dairy (415 vs 1213) (ORBIS 2020). Buyer propensity to substitute is low,
given that cheese is a unique product, however, the lactose-intolerance issue in part of the
population can act as a threat increasing the substitutes rate.
Finally, the competition in the Japanese cheese market is high, with a significant number
of producers. Megmilk Snow, a local company, leads the market with 28,1% share, followed by
other Japanese companies, such as Rokko Butter, Morinaga Milk, Meiji Co, Tokyo Dairy as
others, with the French Company, Bel Groupe (being the foreign exception), all with a market
share lower than 11,3%, translating into a fragmented market with several smaller players
operating. As Japanese consumers tend to prefer high-quality products, private labels are less
valuable with only 3,2% market share. This leads to assuming that brand loyalty is higher in
comparison to other regions (Euromonitor International 2020). Bearing in mind the high growth
expected of the industry and the openness to foreign companies due to trade agreements, the
number of competitors and the rivalry among them is expected to increase accordingly. In
light of this, S4 might face some challenges which are offset by the growing demand for high-
quality products leading several companies to see a chance in placing specialty cheeses, namely
the ones with less strong tastes given the consumers’ reluctancy to stronger flavours.
Contacts
Japan has been a reliable agriculture and food trading partner for Europe continuously
focused on importing EU goods and establishing useful contacts. In details, these associations
and institutions may be important to exploit business opportunities in loco: Portugal’s Embassy,
AICEP in Tokyo, JETRO, Financial Services Agency, The Tokyo Chamber of Commerce and
Industry, MIPRO, JSA and Bank of Japan (AICEP 2018). For S4 there may be many
opportunities to a successful entrance, considering the long-term trading connection between
both regions and the newly EPA, which leads to several benefits.
61
5.5. Target Market Selection
Based on the in-depth analysis of the four countries selected, United States and Germany
are the target markets recommended for S4’s expansion and consolidation. Canada was not
chosen since it has the worst sales potential among the four and it is in the same region as the
United States (North America). By comparing them directly it is noticeable United States is
more promising. Japan was also disregarded as it would be the riskiest market to target:
although it is trying to make entry conditions easier and increasing cheese consumption, dairy
products are still less present in their traditional culture, namely due to the food habits and the
high number of lactose intolerants, which may impact the expected sales. In addition,
consumers’ preferences towards less strong flavours would limit S4 from taking the full
potential of commercializing cured cheeses and PDOs, which are the product lines usually
exported overseas. The U.S. and German cheese markets are significantly the most attractive
worldwide, registering both high levels of cheese consumption per capita, economic and trade
stability, established trustful relationships with S4’s domestic market as well as solid and
reliable logistics and service infrastructures to support a business. Furthermore, the wide retail
network in both countries would facilitate the access to distribution channels, enhancing the
possibility to reach a broader and diversified range of consumers. If on one hand the U.S. cheese
market distinguishes itself for the highest global retail value of 24188,2 USD million in 2019
which is forecasted to grow faster than Germany (2020-2025 CAGR 3,6% vs 0,75%) and the
presence of the largest Portuguese community in the world (roughly 1,5 M people) that may
facilitate S4’s entry in the market, on other hand Germany is the highest cheese importer in
global comparison, with low barriers to entry for European companies. While in Germany there
is a reduced VAT rate of 5% for cheese and the tax free for any movement of goods and services
(European Commission 2020), a Portuguese company as S4 that exports to the United Stated
needs to expect a tariff of 35% and an extra import permit’s value that might be added
62
depending on the type of milk. Each commercial import of food and beverage goods shipped to
U.S must fill the Prior Notice via electronic platform, namely a 5-day prior notification must
be received by the FDA before the arrival of the products (European Commission 2020) as well
as register their goods with the same organization for admission as each year the import permit
for milk should be renewed. Overall, S4 will have to comply in both markets with the health
and food legislation and regulations, governmental policies and certifications (i.e., U.S. FDA
in United States and Animal health legislation in Germany) as well as more restrictive labelling
and packaging requisites (European Commission 2020). More specifically, in United States all
required statements must be in English and both labels must accurately describe the
specifications of the products, such as the milk base, place of origin and nutrition declaration
(Federal Ministry of Food and Agriculture 2020). Particularly to sell products in Germany, S4
needs to have certification on PDOs and a DNA test on goat cheeses30 (see Appendix 47).
Finally, the high number of players operating in both markets and the notable level of
rivalry, with private labels continuously gaining market share, at first sight may appear as a
discouraging signal for the expansion, though, S4 may take advantage of the new emerging
trends and opportunities within niches. Particularly, in United States with the increasing
demand for European high-quality cheeses – namely specialty and artisanal - recognized
through the place of origin and the unique and robust flavours and in Germany with the growing
demand for premium diversified cheeses. Moreover, consumers in both countries are more
concerned about healthy, organic and snack-sized options which may reveal another
opportunity for S4 to increase its popularity and distinctive position worldwide. Since both
countries show a great potential in terms of cheese consumption habits, market size, expected
sales and explorable new trends, a multiple expansion
- Leverage investments and strategy to convert into a cash cow consolidating its
positioning in the domestic and international market; - Strategic choices: market development.
CASH COWS Fresh and cottage Cheeses - S4’s leading position in the Portuguese fresh cheese segment; - Core line giving the highest gross margin, allowing to constant revenues streams;
Fresh CheeseUnprocessed Soft Cheese and Spreadable processed
(namely the cream cheese)
Cured Cheese
Goat
Sheep
Cow
Mixed
PDO's
Sliced and grated Unprocessed Hard Cheese
Cottage cheese Unprocessed Soft Cheese
Product Line
Processed and Unprocessed Cheeses
(depending on the cheese reference)
General Market Definition
158
Appendix 12: Global Cheese Market Volume in thousand tonnes from 2017 to 2025 (and
YoY growth) 32
(Euromonitor International 2020)
32Asia Pacific: Azerbaijan, Bangladesh, Cambodia, China, Hong Kong, India, Indonesia, Japan, Kazakhstan, Laos, Malaysia, Myanmar,
Pakistan Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, Uzbekistan, Vietnam.
Australasia: Australia and New Zealand. Eastern Europe: Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Latvia, Lithuania, North
Latin America: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras,
Mexico, Panama, Paraguay, Peru, Uruguay, Venezuela.
Middle East and Africa: Algeria, Angola, Cameroon, Côte d'Ivoire, Egypt, Ethiopia, Ghana, Iraq, Israel, Jordan, Kenya, Kuwait, Lebanon, Morocco, Nigeria, Oman, Qatar, Saudi Arabia, South Africa, Tanzania, Tunisia, Uganda and United Arab Emirates.
North America: Canada and The United States.
Western Europe: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, Turkey, and United Kingdom.
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
0.0
5,000.0
10,000.0
15,000.0
20,000.0
25,000.0
2017 2018 2019 2020 2021 2022 2023 2024 2025
YoY
glo
bal g
row
th (%
)G
lobal
Volu
me
('000 t
onnes
)
Cheese Market Volume globally and by region and
YoY global growth (%)
Western Europe North America Latin America
Eastern Europe Middle East and Africa Asia Pacific
Australasia
159
Appendix 13: Forecasted 2020- 25 Cheese Market Consumption Volume by region (in
Ossau Iraty AOP 4.90 Bertrand Rohmilch Camembert 2.38 Italian Cheese La Tur 8 oz 5.79 Cravanzina 5.93 Italian Cheese Brunet 10.2 oz 5.83 Burgeiser Classic 2.67 Vinschgauer Bergbauernkäse 1.83
Stilfser Käse g.U. Mila 3.72
Average price of Specialty cheeses of partners analysed (per 100g) in $ 4,12 € 3,4
Average price of Specialty cheeses of partners analysed (per kg) in $ 41,2 € 34,05
210
Appendix 63: Marketing Budget Initiatives by year
MARKETING INITIATIVES
USA Germany YEAR
1 YEAR
2 YEAR
3 YEAR
4 YEAR
5
Food trend magazines
1 post per month on one gourmet
magazine
1 post per month on one gourmet
magazine X X
Sponsorship (chefs,
restaurants, among others)
4,6,8 and 10 sponsors with 30
products given every month
4,6,8 and 10 sponsors with 30
products given every month
X X X X X
Trade shows
Participation & acquisition of a small booth in a
trade show
Participation & acquisition of a small booth in a
trade show
X X X X X
Sponsored content
Monthly publications
Monthly publications
X X X X X
Facebook
Assuming 1 out of 1000 inhabitants will click, with a CPC of
0,66€
Assuming 1 out of 1000 inhabitants will click, with a CPC of
0,66€
X X X X X
Graphic Content
Cost based on Graphic designers’
services
Cost based on Graphic designers’
services X X X X X
Instagram
Assuming 1 out of 1000 inhabitants will click, with a CPC of
0,50€
Assuming 1 out of 1000 inhabitants will click, with a CPC of
0,50€
X X X X X
Reward of contests
Assuming 5 cheeses of 250g will be
distributed to the winner of the contest, on a monthly basis
Assuming 5 cheeses of 250g will be
distributed to the winner of the contest, on a monthly basis
X X X X X
Influencers 2 montlhy posts 2 montlhy posts X X X X X
211
Blog One blog content
created on the website
One blog content created on the
website X
Personalized email
Campaign with a montlhy fee of 250€
Campaign with a montlhy fee of 250€
X X X X X
Email Newsletter
Monthly campaign with 4 articles with a
cost of 477€ per month
Monthly campaign with 4 articles with a
cost of 477€ per month
X X X X X
Banner & Pop ups
2 pop ups or banners each month
2 pop ups or banners each month
X X X X X
Development of existing
website
Development of website to properly
enter the market (English language)
Development of website to properly
enter the market (English language)
X
Google Adwords / SEO
Investment of $2500 each month
Investment of $2500 each month
X X X X X
Surveys
Investment on first year to properly consolidate the
markets’ knowledge, and in Year 5, just
before the new marketing plan
Investment on first year to properly consolidate the
markets’ knowledge, and in Year 5, just
before the new marketing plan
X X
Points of purchase
(POP)
S4 will assume to have one POP on 50 retailers for the first
3 years
S4 will assume to have one POP on 50 retailers for the first
3 years
X X X
Tasting sessions
6 times a year in each of the 50
retailers, with 100 consumers
participating
6 times a year in each of the 50
retailers, with 100 consumers
participating
X X X
212
In store promotors
50 promotors, working 2 days a
month, with minimum salary
50 promotors, working 2 days a
month, with minimum salary
X X X
Stickers cards
20% discount on the next unit for each
sticker card complete
20% discount on the next unit for each
sticker card complete
X X X
Discount on bulk buying
2 times a year, 10% discount for a
purchase of 10 units
2 times a year, 10% discount for a
purchase of 10 units X X
213
Appendix 64: Marketing Budget Assumptions by initiative type
MARKETING INITIATIVES & ASSUMPTIONS
Food trend magazines
Print ads which run in magazines typically cost between $500 and $20000. Since S4 wants to be in the best gourmet magazines, the value assumed will be at the top ceiling of the range, meaning $20000 for USA, for a magazine such as "Cheese Conoisseur". For Germany the targeted magazine is "Der Feinschmecker" and offers a non-negotiable rate 20500€ for monthly posts on the magazine. This initiative may be applicable to both B2C and B2B segments.
Sponsorship (chefs,
restaurants, among others)
It was assumed that S4 would not have to pay anything for the sponsorships, but instead provide the products for chefs and restaurants to use. It was assumed that S4 will increase its number of sponsorships during the first years, being 4 in 2021, 6 in 2022, 8 in 2023 and then 10 sponsors for the rest of the years in each country. It was assumed that each sponsor will receive 30 products a month each year, so the overall cost will depend on the changes in the unit cost. This initiative will mainly be applicable to the B2B segment.
Trade shows
Some future tradeshows happening in both USA and Germany were searched and that price was assumed to be the usual cost. 5636€ for a small both and participation in Germany and $14000 for a small booth in the USA (10x10 both size). This initiative will mainly be applicable to the B2B segment.
Sponsored content
Local publishers set prices for sponsored content from $250 to $500 per article. S4 assumed the average. This initiative will mainly be applicable to the B2C segment.
Facebook
As on general basis, the cost per click on Facebook is 0,66€. S4 will assume that in one year, 1 out of 1000 inhabitants of both East Cost and German population would click on the ads, leading to the price of the Facebook campaign. S4 will use Facebook for all the 5 years, representing its major investment in social media. This initiative will mainly be applicable to the B2C segment.
Graphic Content
A potential invoice for a Graphic design services led to a cost between $100 and $850 on average nationwide, depending on the person’s expertise and the project complexity. S4 will assume 2 designers, one for each country selected. This initiative will mainly be applicable to the B2C segment.
Instagram
The cost per click on average on Instagram is 0,50€. S4 will assume that in one year, 1 out of 1000 inhabitants from both the East Coast and German population would be reached, leading to the price of the Instagram campaign. S4 will use Instagram during the 5 years, helping the company to gain brand awareness. This initiative will mainly be applicable to the B2C segment.
Reward of contests
It was assumed that 5 cheeses of 250g would be distributed to the winner of the contest. S4 will conduct contests each month but will altern from cooking contests and social media contests, so each type of contest will be conducted 6 times a year. This initiative will mainly be applicable to the B2C segment.
Influencers
According to a source, a service from a food influencer to use one of S4 products and make a post is on average equal to $169. S4 will assume 2 posts each month in both the USA and Germany, reaching a number of 48 units per year. This initiative will mainly be applicable to the B2C segment.
Blog Sources shown that the creation of a blog has an average cost in between $34.50 to $65.40. S4 will assume the average price. This initiative will mainly be applicable to the B2C segment.
214
Personalized email
S4 will invest $250 per month and will have to pay a one-time $25 setup fee. It includes access to an email marketing consultant, one email message blast per month, and a custom-designed email template. This initiative may be applicable to both B2C and B2B segments.
Email Newsletter
Average prices for newsletter vary depending on the preferred service. S4 will assume to use a newsletter with 4 articles (least amount). S4 will therefore have a hand on the articles since it will write them, but then it will pay another company to edit and send them, with a cost of $477. S4 will assume to send newsletters each month in both countries, leading to a total of 24 times. This initiative may be applicable to both B2C and B2B segments.
Banner & Pop ups
It was assumed that the banner and pop ups would have a small size (200x200) which will have a unit cost of $28. This initiative will mainly be applicable to the B2C segment.
Development of existing
website
Since the cost of development and optimization of the website is not fixed and can change accordingly to what the company wants to create, a potential invoice was conducted, leading to a price average of 12 396,69€. This initiative may be applicable to both B2C and B2B segments.
Google Adwords / SEO
A potential invoice was conducted. As the model of GoogleAds is based on an "auction" type, S4 will assume a fixed investment of $2500 per month, both in USA & Germany. This initiative will mainly be applicable to the B2C segment.
Surveys Depending on the level of analysis and reporting required, the price lays between $15000 and $35000, so the cost was assumed to be the average. This initiative may be applicable to both B2C and B2B segments.
Points of purchase (POP)
On average, the price for a physical point of purchase is between $60 and $90. S4 will assume the average, a price of $75 for each POP, in both USA and Germany. This initiative will mainly be applicable to the B2C segment.
Tasting sessions
50 locations (retailers) were assumed to place S4's initiatives and 100 consumers were assumed to test the products in each one of them. The overall cost will depend on the changes in the unit cost each year. This initiative may be applicable to both B2C and B2B segments.
In store promotors
The minimum salary in each country was assumed for 50 people working as promotors during one weekend (16 hours) per two months during the first three years. This initiative will mainly be applicable to the B2C segment.
Stickers cards It was assumed that the number of people benefiting from the discount of stickers' cards would increase each year during the first 3 years (being 100 in 2021, 150 in 2022 and 200 in 2023). This initiative will mainly be applicable to the B2C segment.
Discount on bulk buying
It was assumed that one specialty cheese weights 250g and that 500 consumers in each country would by S4's cheeses on the day of the bulk buying promotion. This initiative will mainly be applicable to the B2C segment.
215
Appendix 65: Unit Cost of Production – Internal Transfer Price
(Company information 2020)
Revenues S4 51552811
Revenues Domestic market 49593804
Revenues Specialty/Cured line 18845646
% Specialty/Cured line in domestic sales 38%
Main costs S4 49896948
Main costs Domestic market 48000864
Main costs Specialty/Cured line 18240328
Average price domestic market to consumers 17,33
Average price domestic market to retailers 13,34
Volumes sold Specialty/Cured line 1412283
Cost per unit 12,92
Specialty/Cured cheese S4
216
Appendix 66: Projected Profitability evolution in United States
Appendix 67: Projected Profitability evolution in Germany
217
Appendix 68: P&L Statement - United States
Appendix 69: P&L Statement - Germany
€ 2021F 2022F 2023F 2024F 2025F
Revenues US (including retailer/partner) 3314892 3717121 4168156 4886371 5728342
Average price specialty US 38 39 40 40 41
Volumes sold in US 86800 95480 105028 120782 138900
Revenues of Santiago (including partner) 2552467 2862183 3209480 3762506 4410823
% of compensation to retailers in US 23% 23% 23% 23% 23%
Revenues of Santiago 2144072 2404234 2695964 3160505 3705092
% of revenues USA 16% 16% 16% 16% 16%
Cost of Goods Sold 1121065 1233171 1356488 1559961 1793956
Unit cost per product 12,92 12,92 12,92 12,92 12,92
Transportation related costs USA 14 800 16 280 17 908 20 594 23 683